July 17, 2012

GSK Pharma Acquires Human Genome Sciences For $3.6 Billion

British pharmaceutical giant GlaxoSmithKline (GSK) has acquired US-based Human Genome Sciences (HGS) after tough negotiations saw it raise offers from an initial $2.6 billion in April, putting the final value of the deal at $3.6 billion or $14.25 per share.

By securing HGS, GSK is gaining full control of the drug Benlysta, the first drug in more than 50 years to be approved by the Food and Drug Administration (FDA) for the treatment of lupus. HGS first discovered the drug with Cambridge Antibody Technology and then went on to market it through GSK.

The acquisition marks an end to an increasingly heated battle for control of the life sciences company, one of the world´s most lucrative biotech firms. The initial offer of $2.6 billion was rejected as too low by board of directors at HGS. And after intense negotiations over the past few months, HGS accepted GSK´s bid of $3.6 billion, or $3.0 billion after subtracting HGS´s debt, according to the parties involved.

HGS, founded by William Haseltine in 1992, received millions of dollars in support from venture capitalists looking to take advantage of genome science innovations and discoveries. Among the firm´s greatest successes was the development and marketing of the lupus treatment. HGS also co-marketed two other drugs with GSK - one for diabetes and another for heart disease.

The HGS/GSK deal was negotiated after HGS contacted the British pharma last Friday, according to a person familiar with the negotiations. Talks continued throughout the weekend and resulted in the deal announced on Monday.

“We are pleased to have reached a mutually beneficial agreement with HGS on friendly terms and believe the combination of GSK and HGS represents clear financial and strategic logic for both companies and our respective shareholders,” Sir Andrew Witty, CEO at GlaxoSmithKline, told The Guardian in a statement.

The deal was made on the day that Human Genome Sciences had set as the deadline for the process of finding alternative buyers.

“After a thorough analysis of strategic alternatives, HGS has determined that a combination with GSK is the best course of action for our company and the best way to maximize value for our stockholders,” said GSK´s Thomas Watkins. “HGS has had a long and productive working relationship with GSK, and together we will be uniquely positioned to achieve the full potential of Benlysta and other products in our pipeline for the benefit of those battling serious disease around the world.”

Despite jumping the offer up to $3.6 billion to set the deal in stone, industry analysts said GSK got a good deal. Investors of HGS, however, were left frustrated as many were looking for a share price in the high teens.

“I'm disappointed with the deal because I think Benlysta is actually going to be a good drug," said Carol Werther, an analyst at Summer Street Research. “Glaxo wanted to get this on the cheap and they were able to do it in the absence of other bidders.”

GSK said it should achieve cost savings of at least $200 million by 2015 now that it has custody of Human Genome Sciences.

GSK tried to bypass the board and buy stock from investors in May, but that effort was thwarted by HGS when it moved forward with plans for a “poison pill” to discourage the hostel takeover. That move displeased some shareholders, who filed a lawsuit in response.

“We´ve seen a number of hostile bids in this space but going through what´s kind of an extraordinary step of a poison pill approach, instead of taking it to shareholders and arguing it out there, was kind of unprecedented,” Christopher Raymond, senior biotechnology analyst at Robert Baird, told The Washington Post℠s Steven Overly.

“If you own this [stock] year to date, you should be pretty happy,” Raymond said. “But it´s been a lot higher than here, so is it a ding on HGS? In some ways I think you can argue they´ve definitely not fulfilled the promise of this name´s history going back.”